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U.S. Department of State, "2012 International Narcotics Control Strategy Report," March 2012
Drug and Chemical Control
China is a growing transit and destination country for illicit drugs, and a major producer of precursor chemicals. Heroin from Southeast and Southwest Asian countries bound for international markets transits China, including heroin entering northwestern China from Afghanistan, Pakistan, and Tajikistan. Southeast Asian heroin that enters China from Burma transits southern China to various international markets by maritime transport.
Precursor chemicals produced for legitimate use are frequently diverted by organized crime syndicates to manufacture illicit substances such as cocaine, heroin and crystal methamphetamine. The country’s close proximity to the Golden Triangle, and its numerous coastal cities with large and modern port facilities, such as Qingdao, Shanghai, Tianjin, Guangzhou, and Hong Kong, make it an attractive transit venue for illicit drugs.
As the Chinese economy has become more integrated in the world economy, drug crimes and drug users in China have increased. In 2010, 611 cases were uncovered with the seizure of more than 1,500 kg of drugs, representing a 50% increase compared with 2009. Large-scale organized criminal groups traffic drugs to certain major cities in northern and southeastern China.
Chinese authorities continue to take steps to integrate China into regional and global counternarcotics efforts. However, corruption in drug-producing and drug transit regions of China and lack of transparent regulations limit what dedicated law enforcement officials can accomplish. China is party to the 1988 UN Drug Convention.
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Money Laundering and Financial Crimes
China is swiftly becoming a major global financial center, with a rapidly growing economy and increased integration in the international market. The primary sources of criminal proceeds are corruption, narcotics and human trafficking, smuggling, economic crimes, intellectual property theft, counterfeit goods, crimes against property, and tax evasion. Money is generally laundered through bulk cash smuggling, trade-based fraud (over/under pricing of goods, falsified bills of lading and customs declarations, counterfeit import/export contracts), real estate, and both the formal and underground banking systems.
Most money laundering cases currently under investigation involve funds obtained from corruption and bribery. Proceeds of tax evasion, recycled through offshore companies, often return to China disguised as foreign investment and, as such, receive tax benefits. Chinese officials have noted that most acts of corruption in China are closely related to economic activities that accompany illegal money transfers.
Chinese authorities have observed that the increase in AML efforts by banks has been accompanied by increased laundering through the underground banking system and trade fraud. Value transfer via trade goods, including barter exchange, is a common component in Chinese underground finance. Many Chinese underground trading networks in Africa, Asia, the Middle East, and the Americas participate in the trade of Chinese-manufactured counterfeit goods.
China is not a major offshore financial center. China has multiple Special Economic Zones (SEZs) and other designated development zones at the national, regional, and local levels. SEZs include Shenzhen, Shantou, Zhuhai, Xiamen, and Hainan, along with 14 coastal cities and over 100 designated development zones.
For additional information focusing on terrorism financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/
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